Each September for the past decade, home builders have been tuning in to the voice of J.D. Power and Associates, practically ringing across the rooftops. “Reduce warranty calls,” they say. “Give your customer an experience,” they counsel. “Deliver on-time, complete homes,” they implore.

For some, the fanfare surrounding the annual release of the J.D. Power and Associates 2006 New-Home Builder Customer Satisfaction Study comes across the air-waves like a serenade of praise, affirming a proven commitment to customer satisfaction initiatives year-in and year-out. To others, the few that have yet to embrace the customer experience in a profoundly cultural way, the annual J.D. Power rankings release is often as shrill as nails down a chalkboard.

But this past September 13, as the 2006 numbers and rankings came to light amid a much different industry environment, there emerged a new twist on the call to action by J.D. Power and other companies that champion the benefits of customer care—and it sounds uncannily like a warning blast.

Amid harsh indicators—such as new-home sales figures in August that fell 17.4 percent from August 2005 levels, and the one-in-two cancellation rates many big builders are reporting—staying focused on customer satisfaction is more imperative than ever, the experts declare.

“A lot of people think they finally have [the issue of customer satisfaction] all figured out,” says Paula Sonkin, executive director of real estate industries at J.D. Power and Associates, noting that, in general, the industry's scores have leveled off this year. “But it's critical, especially in this new business environment, to remember that this is a journey, not a destination. Consumers will keep raising the bar. If you rest on your laurels, someone else is just going to pass you up.”

In many ways, the industry is caught in the perfect storm. Just as the market gets tougher, consumers are becoming even more demanding. With most economists predicting a solid two to four years of more normalized levels of industry activity, builders are scrambling to reinvent themselves. And for many, that means cost cutting. But focus solely on the financial matrix of your company, and you'll be missing opportunities to grab customers.

“Those who survive will return value to the buyer,” predicts NRS founder and CEO Paul Cardis, who sees the downturn as “a golden opportunity” for builders. “Value isn't just about price. It's about the customer experience, too. In today's market, you need to provide the right price, the right product, and the right experience. If you can achieve excellence in all three of those areas, you'll be unstoppable.” Of course, finding that sweet spot is easier said than done.

We've Come a Long Way, Baby

Ten years ago, when J.D. Power first shined its mega-bright spotlight on customer satisfaction survey results for all the home-buying public to see, many builders were dragged, grudgingly, into the conversation of improved customer care. A few embraced the idea, but most remained skeptical of the seemingly intangible benefits.

In time, strong-armed by J.D. Power's undeniable consumer cache, most majors transitioned into the lip-service stage of talking the talk, but not quite walking the walk.

Eventually, the competitive spirit got the best of many. As they saw the early adopters reap the rewards of high customer-satisfaction ratings, builders recognized the powerful impact on a company's marketing, referral rates, and ultimately, sales. In stark contrast to 1996, most of the nation's top companies today will gleefully admit to drinking the Kool-Aid.

“At Centex Corp., this is just a core value,” says Paul Bessler, senior vice president of strategic marketing at Centex Homes, which ranked highest in 13 of the 34 markets J.D. Power surveys. “It's high on our radar screen.”

Though the industry has made great strides in its ability to satisfy customers, many opportunities for improvement still exist.

Like any home building company worth its salt, Barratt American, in Carlsbad, Calif., will also tell you that they have embraced the ideals around customer satisfaction. But it wasn't always so. In fact, just a couple of years ago, the company was more focused on fixing problems as they occurred than preventing unhappy buyers in the first place.

“Customer relations was hidden in the back of the company and viewed as an emergency room,” says Chris Alexander, principal of Lake Forest, Calif.–based Synergy Executive Education, of Barratt's strategy. “We needed to bring the practice of exceeding customer expectations to the front of the business and cascade the message of customer care in everything they did.”

Applying his experience with companies like Mercedes Benz and Johnson & Johnson, Alexander worked closely with executives and management to develop customer-care professionals at every level of the business. Today, Barratt is seeing the benefits in a variety of ways, including reduced litigation costs and increased brand awareness. But what's of even greater benefit is the increase in referrals.

Research showed that Barratt customers who experienced “exceptional” service would refer six to seven people as opposed to the one to two referrals the company could expect from a customer who was merely “satisfied.” Of those exceptional referrals, one in five translated into a sale—an additional 20 percent at little cost. And during a tough business climate, capturing incremental sales at minimal expense could act not just as a recipe for success, but for survival.

In fact, it's the down market that may underscore the economic value of cultivating high satisfaction levels for the long term. And builders that focus on satisfaction beyond the first 12 months of home-ownership are likely to reap the rewards in both referrals and repeat buyers. (See “A Friend in Deed,” page 42.)

Bessler agrees. “Focusing on customer satisfaction now becomes more critical because we are competing for fewer buyers. If I am ready to buy a home, I'm going to be doing a lot of due diligence, because I know a lot of builders are interested in my business. And that's where the referrals come in.”

The downturn has made Barratt more dedicated to customer satisfaction than ever. The organization has even taken great strides to focus on satisfaction during the lending process, an area fraught with opportunity to improve. (See “Stress Fractures,” page 48.)

Another hot spot: Managing the gap between sales promises and realistic production is also more critical than ever. Pressured to perform in a strained environment, sales staff are promising the moon to seal any contract. But marketing unrealistic promises sets the stage for dissatisfied customers. (See “Diary of a Mad House Buyer,” page 28.)

As always, there are lessons to garner from other industries. (See “Show Me the Love,” page 34.) And as new challenges begin to unfold, we continue to search, both inside and outside the industry, for best practices to apply. But the real proof of the industry's success may not be evident until next September, when J.D. Power scores reflect a snapshot of our performance fully entrenched in tough times.

So how will today's market conditions play out?

The jury is still out according to Sonkin. “There are fewer people today to deal with the record number of [home] sales,” she says. “In that situation, customer satisfaction could easily go down.”

“On the other hand, [builders] are making fewer sales. They are offering incentives. They are learning how to negotiate. Logic says, satisfaction should go up [because] you have more time to fix problems and you should be able to do it quicker.”

“There is a lot of opportunity for improvement,” says Sonkin. “There is much that is in the control of the builders. But honestly, it could go either way.”